Abstract
Purpose
This paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015.
Design/methodology/approach
Using survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates.
Findings
This paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover.
Practical implications
Given the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy.
Originality/value
While the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.
This paper aims to examine whether agency costs predict disciplinary takeover likelihood for the UK listed companies between 1986 and 2015.
Design/methodology/approach
Using survival analysis, the approach is to identify candidates for disciplinary takeover on the basis of Tobin’s Q (TQ), which is consistent with the approach advocated by Manne (1965). This study then examines how indicators of agency costs affect takeover likelihood within the set of disciplinary candidates.
Findings
This paper provides evidence of the effectiveness of TQ, rather than excess return, in identifying disciplinary takeover candidates. Takeover hazard for disciplinary candidates is higher for companies with higher levels of asset utilization and sales growth in particular. Companies with stronger agency problems are relatively less susceptible to disciplinary takeover.
Practical implications
Given the UK context of the study, where anti-takeover provisions are disallowed and when compared to findings of US studies, the results imply some support for the effectiveness of an open merger policy.
Originality/value
While the connection between takeover likelihood and the market for corporate control has been made in previous studies, the study adopts a more explicit agency theory framework than previous studies of takeover likelihood. A key component of the contribution follows from differentiating candidates for disciplinary takeovers from other forms of mergers and acquisitions.
Original language | English |
---|---|
Pages (from-to) | 23-52 |
Number of pages | 30 |
Journal | Review of Accounting and Finance |
Volume | 20 |
Issue number | 1 |
Early online date | 8 Jun 2021 |
DOIs | |
Publication status | Published - 29 Jul 2021 |
Keywords
- Agency costs
- M&A
- Market for corporate control
- Survival analysis
- Takeover likelihood
ASJC Scopus subject areas
- Accounting
- Finance
- Economics, Econometrics and Finance(all)